Giornale degli Economisti e Annali di Economia Volume 61 - N. 2 (Dicembre 2002) pp. 215-265 THE ROLE OF FORECASTS IN SOCIAL SECURITY POLICY DANIELE FRANCO AND MARIA ROSARIA MARINO* Received: April 2002; accepted: July 2002 Long-term projections of pension expenditure are essential to evaluate the sustain- ability of social policies and potential reforms. The paper examines the main projec- tions made in Italy and highlights the progress made and the problems remaining. It argues that forecasts played an important role in Italian pension policy, either post- poning or enhancing reforms. The forecasts made in other European countries are al- so considered, as well as some significant revisions of the results of forecasting exer- cises. The paper emphasizes the importance of the attribution of responsibility and the frequency and transparency of projections. It argues that pension expenditure pro- jections should be supplemented by estimates of the overall evolution of public fi- nances and the economic situation of pensioners. It is absurd to claim that a decision is based on a valid prediction if the latter is kept se- cret so that public opinion cannot judge how well the decision corresponds to the pre- diction or criticise the prediction itself. If a prediction serves to make “public” (i.e. “gov- ernmental”) decisions, it must be made public (i.e. made known to the public). Bertrand de Jouvenel, The Art of Conjecture JEL: E62, H55 Keywords: pension expenditure, social security, projections, forecasting proce- dures, sustainability 1. INTRODUCTION 1 Over the last two decades the need for long-term projections of public expenditure has been strengthening throughout industrial countries. This * Research Department, Banca d’Italia. The views expressed in this paper are those of the authors and do not commit the Banca d’Italia. The authors would like to thank an anonymous referee for her/his comments and suggestions. 1 The first draft of this paper was presented at the conference “New Frontiers of Eco- nomic Policy 2001. Pensions: A real check-up?”, 20 September, Rome.